'No Immediate Solution' Merkel Pledges New Fiscal Unity for Europe
German Chancellor Angela Merkel on Friday delivered a speech outlining her vision for the course Europe must chart to escape the ongoing sovereign debt crisis. The EU, she said, needs strict new rules to ensure budgetary discipline across the Continent. But it will take time to overcome the crisis, she warned.
Patience. That is the primary message that Chancellor Angela Merkel sought to deliver to the German parliament in a keynote speech on Friday in preparation for next week's European Union summit in Brussels. When it comes to the euro crisis, she said, "there is no immediate solution, there are no quick and easy answers." The chancellor added that "resolving the sovereign debt crisis is a process and this process will take years."
Berlin, she made clear, is focused on changing European treaties to increase the stability of the common currency zone. In particular, she said that her government would push for the introduction of a "European debt brake" -- strict regulations governing the amount of debt euro-zone countries can take on.
"In order to win back trust, we need to do more. Whereas today we have agreements, in the future we need to have legally binding regulations," she said. Merkel is seeking to introduce automatic sanctions should countries violate strict budget rules. She also said that the European Court of Justice should have jurisdiction.
Merkel's speech comes ahead of a meeting planned for Monday with French President Nicolas Sarkozy, at which the two plan to present a clear vision of the changes to European Union regulations they believe will chart a course out of the crisis. Merkel on Friday said that, while she hopes the changes can be agreed to by all 27 EU countries, if necessary she would be in favor of agreement among the 17 euro-zone member states instead.
"We aren't just talking about a fiscal union," she said. "Rather we have begun creating one."
Crucial 10-Day Period
Merkel's address followed a similar keynote speech delivered by Sarkozy on Thursday evening in the French town of Toulon. The French president also emphasized the need for changes to EU treaties. "There can be no common currency without economic convergence," Sarkozy said, "without which the euro will be too strong for some, too weak for others, and the euro zone will break up."
The pair of speeches came as financial markets continued clamoring for a solution to the European debt crisis. In recent weeks, the crisis has shown worrying signs of spreading to core euro-zone economies such as Italy, France and Spain. Last week, interest rates on sovereign bonds issued by Spain and Italy shot up into dangerous territory, with European Commissioner for Economic and Monetary Affairs Olli Rehn saying that the EU was entering a crucial 10-day period to save the euro.
Interest rates on European sovereign bonds have since retreated. But the pressure to calm the markets has added urgency to next week's summit, which is scheduled for Thursday and Friday.
Merkel on Friday once again emphasized her opposition to the idea of pooling euro-zone debt by introducing so-called euro bonds. She said that her proposals to allow European oversight of member-state budgets rendered the discussion "finished."
Many analysts doubt whether treaty changes would be enough to restore faith in the euro zone's ability to solve the debt crisis and have urged the introduction of euro bonds. Alternatively, some have suggested that the European Central Bank should step in to purchase massive quantities of euro-zone sovereign bonds in order to bring down borrowing costs.
Hints of Action from ECB
Merkel has been deeply opposed to such a move, and on Friday explicitly said that "the European Central Bank has a different task from that of the US Fed or the Bank of England," a reference to calls for the ECB to emulate those central banks in past efforts to stabilize the dollar and the pound.
Still, ECB President Mario Draghi hinted on Thursday that, were EU leaders to implement treaty changes to accelerate fiscal union, the ECB could take action to stabilize the common currency. "Other elements might follow," he said, in reference to coordinated action taken by several central banks around the world on Wednesday to make it easier for banks to access dollars. "But the sequencing matters." He added that "a new fiscal compact would be the most important signal from euro-area governments for embarking on a path of comprehensive deepening of economic integration."
In her speech on Friday, Merkel also spoke to suggestions that Germany was trying to impose its will on Europe. Specifically, French Socialists, emboldened by indications that they might be able to wrest the presidency from Sarkozy in next year's elections, have denounced Sarkozy for supporting an "austerity treaty" dictated by Germany. Merkel said that such accusations are "misplaced." She said that German and European unification "were and continue to be two sides of the same coin. And we will never forget that."
cgh -- with wire reports